Taxation and National Debt

[Chris.S]

I'm currently reading George Reisman's "Capitalism: A Treatise on Economics", and a question popped into my head: if Canada (or the USA or any other country) were to spontaneously adopt voluntary taxation for the 3 branches of government, how does it pay off its debt? Even if it keeps forced taxation but only used the revenue for the 3 branches, that still leaves a large debt growing larger over time.

(this question might be answered later in the book, but I'm currently only on page 28)

[softwareNerd]

There has been some discussion on this, if you want to play with searching.

Briefly, there is one set of people who take the attitude that one should simply stop all government spending immediately, except that on he protection of rights.

OTOH, others, including me, think that stopping everything overnight would be immoral. As part of the phase-out, I think we should pay off the debt. We're in this as a country, and we should get out of it as a country, without overly penalizing one set of people who were very reasonable in the assumptions they made.

I should add that I think the question is purely academic, because change will not happen overnight.

Edited June 13, 2009 by softwareNerd

[Zip]

I would think the huge sell off of what are now government owned assets (roads, bridges, land etc.) would go a long way to paying off the National debt. Think of it. What do you suppose the value of a kilometer of the 401 would be worth? How much would a company pay to own the Golden Gate bridge?

[Chris.S]

Yeah, I'll try searching the forum a bit (the ol' fashion way - the search function doesn't like me). I posted a bit hastily because I wanted to get the question out. I would agree that things would be pretty crazy if government dropped taxation immediately, though.

Depends on where the kilometer is, Zip. Anywhere metropolitan would probably be quite a few million (possibly hundreds of millions if in Toronto), seeing as any company could make billions off charging for usage (like with the 407). If I decide to get into infrastructure development, I can give you better specifics when I'm rich

[2046]

http://mises.org/article.aspx?Id=1423

This is an article written by libertarian Murray Rothbard (an anti-Objectivist) called "Repudiate the National Debt! It's the just and practical solution."

What do Objectivists think about this?

[Jake_Ellison]

I think it depends on the nature of the debt. If there were a real movement toward limited government, asking everyone to take sides, then the people still supporting big government by buying their debt would not be owed thei money back when the government loses out in the (democratic) revolution.

But, our current reality is that people are forced to work under the influence of government, they don't have an altenative choice. So, I partially agree with SoftwareNerd, that they were reasonable in assuming that the government will not waste all their money, some of it would still be available to be given back. However, they were not reasonable in expecting that the government will make a profit, and pay them back in full and with interest. The fact is that they, in fact, were expecting that the gov. will pay them back with interest from future taxation-and that is an unreasonable expectation, to some extent.

So, to the extent that the investments the government made, using the money they borrowed, panned out, we should pay the debt holders back from the sale of government property. Obviously, it is a bit more complicated than that, because borrowed money is mixed in with stolen money (tax money), but bankrupcy is not a new thing. We had bankrupt firms that stole, or defrauded, as well as borrowed money, and the Courts do their best to sell their assets, and pay back the stolen and borrowed money, to the extent it is possible. We should proceed along similar lines, when it comes to liquidating a US government that is increasingly likely to not be able to sustain itself.

It remains to be seen whether the ammount of taxes they can gather will be limited politically-by a Congress unwilling to approve any tax hike, or economically-by reaching a plateau above which tax hikes don't generate more revenue, but either way, I don't see the US Fed paying off its debts and social obligations for much longer.

[mrocktor]

Both taxation and using future voluntary contribution to pay off debt are bad options. Taxation is theft, there is no rational argument to be made in its favor. Using voluntary contributions to pay off debt incurred by previous immoral governments is a good way to make people not want to contribute at all. Defaulting is also a bad option, with severe systemic consequences and a shaky moral basis as has been discussed in previous posts.

My idea to get around this conundrum is based on the fact that government debt is denominated in dollars and the fact that paper money has to be ended anyway. Getting rid of paper money is exactly the same problem as dealing with government debt, because in fact paper money is government debt. Basically, whether you hold a 100 dollar bill or a government bond worth 100 dollars you have exactly the same present claim on the government.

The idea is that the total value of illegitimate government property (roads, bridges, the electromagnetic spectrum, mining rights, offshore drilling rights - the list is endless) be used to back all the outstanding paper money and government debt.

How would this work? During the transition government an inventory of all these assets would be made and they would be auctioned off in a previously published order. Bids would be in dollars (or dollar denominated government debt), but unlike your usual "privatization", these dollars would not be spent by the government - they would be destroyed, they would leave the system. Like a warehouse receipt when the stored good is claimed, they would cease to have any meaning.

People and organizations interested in bidding on these auctions would have to buy dollars - with real money (gold) or with assets. This would most likely work through the commercial banks, which would compete among themselves to get dollars to re-sell to these parties. In this way the transition from paper money to real money would be completely market driven, with no arbitrary gold to dollar conversion rate and no use of taxation to cover the gaps.

Ethically, no one can argue that this solution is unfair. All that the government had was used to pay off all claims proportionally. Any further payout would have to rest on further expropriation. If the value received is low, that is only a reflection of reality: immoral governments are massive destroyers of wealth. And there is no getting it back by government fiat.

Edited June 14, 2009 by mrocktor

[softwareNerd]

My personal preference would be not to sell government assets primarily to raise, but to sell them as secondary implication of transitioning that asset to private ownership. I cannot see any possibility where the U.S. suddenly wants to drop everything and turn fully free-market. Any such change will come in stages. The financially conservative approach would be not to rely on large assets like western wildernesses as a primary means of government funding during a transition. Taxes should not be abandoned overnight.

Edited June 14, 2009 by softwareNerd